Ariba Reaches Out To The Little Guy

Written By: D. Geller

Published: September 28 1999

Event
Summary

Ariba (Nasdaq:
ARBA) announced two initiatives aimed at small and mid-sized businesses at Ariba's
User Group and Advisory Council meeting on September 28. The Ariba Internet
Business Exchange is an internet procurement application based on the company's
Ariba Network, which brings together vendors and services into a single purchasing
portal. ORMX is a version of Ariba's buyer-side procurement application that
is designed for application service providers (ASP's), who will offer it on
a subscription basis.

Market
Impact

These announcements
are important in three ways. First, by simplifying its buyer-side features,
Ariba moves into a fragmented market that does not have a clear leader. Second,
by increasing the size of the buyer market it brings to Ariba Network it opens
the door to attracting more vendors and to lowering prices, which in turn will
attract more buyers. Third, Ariba signs on more companies to its cXML dialect
(See TEC's Research Note: "Ariba
Successes Highlight Standards Wars" August 13th, 1999 ) that enables companies
with different systems to exchange commercial information.

Vendor
Winners / Losers

Ariba has made
strong moves with these announcements. Ariba is ranked first in the procurement
space with 42.3 percent of the market according to Dataquest, and these product
initiatives will have the effect of increasing both the E-procurement software
and services market (currently $24.9 million) and Ariba's share. Ariba's major
competitor Commerce One (Nasdaq CMRC), with 6.5 percent market share, may well
suffer in the domestic market, but is making its own moves globally (See TEC's
News Analysis article: "Commerce
One to Procure for the Antipodes and Elsewhere"). The third competitor Intelsys,
with 3.6% market share, is making its own moves into the small and mid-size
market space, notably through a recent announcement with the Chase Manhattan
Bank to develop a purchasing portal for the bank's 350,000 customers. Since
Chase's customer base includes both buyers and sellers there will be competition
for these customers between Ariba's existing vendor-rich network and whatever
inducements Chase offers. There is clearly room for both companies, and more,
but we continue to believe that a major driving force in success is to sign
up as many vendors as possible early, both to have a richer offering and to
tie them to a particular XML dialect. Given Ariba's lead we expect that ambitious
companies like Intelisys will eventually have to become cXML compatible if they
want to share vendors.

Vendor
Recommendations

These announcements
move Ariba into working with a different class of customer. These customers
do not generally have the IT sophistication of the larger enterprises, which
Ariba has recognized by scaling down some features, particularly those involving
back-end integration, and by putting ASP's on the line for direct customer service.
It will be a very attractive option for the smaller companies wanting to achieve
E-procurement savings without the costs of the high-end products. The downside
of working with smaller companies is that the integration and development edges
are a lot rougher, and Ariba is giving control of much of its reputation to
ASP's. Ariba will do well to make training and support of these new partners
its number one priority.